For the full year 2018, Asia Pacific ADV stood at 862,000 contracts, up 29 percent from 2017. This was driven by 108 percent growth in Equity products, 28 percent growth in Energy products, and 14 percent growth in Interest Rates products.

“2018 saw a number of key geopolitical events which contributed to increased volatility in international financial markets, especially towards the tail-end of the year, and further highlighted the need for risk management on a robust, liquid and regulated marketplace,” said Christopher Fix, Managing Director and Head of Asia Pacific, CME Group. “We continue to see trading volume growth out of Asia Pacific, as market participants further look to CME Group to manage their risks across multiple asset classes.”

Latin America quarterly ADV was 107,000 contracts in the fourth quarter of 2018, up 54 percent from the corresponding period in 2017. This was driven by 204 percent growth in Interest Rates products and 21 percent growth in Equity products. For the full year 2018, Latin America ADV stood at 100,000 contracts, up 49 percent, led by 103 percent growth in Interest Rates products and 30 percent growth in Equity products.

Europe, Middle East and Africa (EMEA) quarterly ADV hit 3.7 million contracts in the fourth quarter of 2018, up 16 percent from fourth quarter 2017. This was led by a strong performance in Equity and Interest Rates products, up 44 percent and 28 percent respectively, compared to the same period in 2017. For the full year 2018, EMEA ADV stood at 3.4 million contracts, up 14 percent from 2017, led by 20 percent growth in Interest Rates products, 19 percent growth in Metals products and 14 percent growth in Equity products.

In all, CME Group’s international (defined as outside of North America) ADV reached 4.7 million contracts during the fourth quarter of 2018, up 21 percent over the same period in 2017. For the full year 2018, CME Group’s international ADV stood at 4.4 million contracts, up 17 percent from 2017.

Globally, CME Group reached a record ADV of 19.2 million contracts in 2018, up 18 percent from 2017. This was led by Interest Rates products ADV, up 22 percent to 9.95 million contracts. During 2018, 91 trading days exceeded 20 million contracts, up from 34 days in 2017. Fourth quarter 2018 volume averaged 20.8 million contracts per day, up 31 percent from the same period a year ago.

As the world’s leading and most diverse derivatives marketplace, CME Group (www.cmegroup.com) enables clients to trade futures, options, cash and OTC markets, optimize portfolios, and analyze data – empowering market participants worldwide to efficiently manage risk and capture opportunities. CME Group exchanges offer the widest range of global benchmark products across all major asset classes based on interest rates, equity indexes, foreign exchange, energy, agricultural products and metals. The company offers futures and options on futures trading through the CME Globex® platform, fixed income trading via BrokerTec and foreign exchange trading on the EBS platform. In addition, it operates one of the world’s leading central counterparty clearing providers, CME Clearing. With a range of pre- and post-trade products and services underpinning the entire lifecycle of a trade, CME Group also offers optimization and reconciliation services through TriOptima, and trade processing services through Traiana.

CME Group, the Globe logo, CME, Chicago Mercantile Exchange, Globex, and, E-mini are trademarks of Chicago Mercantile Exchange Inc. CBOT and Chicago Board of Trade are trademarks of Board of Trade of the City of Chicago, Inc. NYMEX, New York Mercantile Exchange and ClearPort are trademarks of New York Mercantile Exchange, Inc. COMEX is a trademark of Commodity Exchange, Inc. BrokerTec, EBS, TriOptima, and Traiana are trademarks of BrokerTec Europe LTD, EBS Group LTD, TriOptima AB, and Traiana, Inc., respectively.Dow Jones, Dow Jones Industrial Average, S&P 500 and S&P are service and/or trademarks of Dow Jones Trademark Holdings LLC, Standard & Poor’s Financial Services LLC and S&P/Dow Jones Indices LLC, as the case may be, and have been licensed for use by Chicago Mercantile Exchange Inc. All other trademarks are the property of their respective owners.

There was a modest drop in agricultural producer sentiment in December as farmers’ perception of both current and future economic conditions weakened, according to results from the Purdue University/CME Group Ag Economy Barometer. The December barometer reading of 127 was 7 points lower than November. The barometer is based on 400 survey responses from agricultural producers across the country.

Both of the barometer’s two sub-indices declined in December: the Index of Current Conditions fell 6 points to 109, and the Index of Future Expectations fell 8 points to 135. When comparing these readings to December 2017, the Index of Current Conditions is substantially lower, registering a decline of 30 points, while the Index of Future Expectations actually improved from year-to-year with an uptick of 15 points.

“Over the course of the last year, producers’ impression of current economic conditions on their farms has declined markedly” said James Mintert, the barometer’s principal investigator and director of Purdue University’s Center for Commercial Agriculture. “But at the same time their expectations for future economic conditions have held steady,” said Mintert. “As a result of this mixed view, farmers appear to be cautious about making large investments in their farming operations.”

For example, in December 2018 the Large Farm Investment Index, which measures whether producers feel this is a good time to make large farm investments, fell 5 points to a reading of 51. This marked a 29 point drop from one year ago when it reached a reading of 70. Those same concerns were also apparent when producers were asked whether now is a “good time” or “not a good time” to bring a new generation of family into the business. Just 42 percent said now was a “good time” compared to approximately half during the previous two years. However, when looking ahead 5 years, 65 percent of producers expect conditions to be more favorable to onboarding a new generation.

International agricultural trade issues continue to cause concern and could be causing producers’ reduced confidence in current economic conditions. When producers were asked whether they expect exports to increase or decrease in the next five years, 59 percent indicated that they expect ag exports to increase, down 7 points from November’s survey response, whereas 26 percent expect ag exports to decrease, up from 10 percent on the November survey.

Read the full December Ag Economy Barometer report at http://purdue.edu/agbarometer. This month’s report includes additional information about farmers usage of and perceived value of incorporating drone technology into their farm’s operation as well as their production expectations for the pork, beef, and dairy industries. Each month Dr. Mintert also provides an in-depth analysis of the barometer. That video is available at http://purdue.edu/agbarometer.

The Ag Economy Barometer, Index of Current Conditions and Index of Future Expectations are available on the Bloomberg Terminal under the following ticker symbols: AGECBARO, AGECCURC and AGECFTEX.

About the Purdue University Center for Commercial AgricultureThe Center for Commercial Agriculture was founded in 2011 to provide professional development and educational programs for farmers. Housed within Purdue University’s Department of Agricultural Economics, the center’s faculty and staff develop and execute research and educational programs that address the different needs of managing in today’s business environment.

About CME GroupAs the world’s leading and most diverse derivatives marketplace, CME Group (www.cmegroup.com) enables clients to trade futures, options, cash and OTC markets, optimize portfolios, and analyze data – empowering market participants worldwide to efficiently manage risk and capture opportunities. CME Group exchanges offer the widest range of global benchmark products across all major asset classes based on interest rates, equity indexes, foreign exchange, energy, agricultural products and metals. The company offers futures and options on futures trading through the CME Globex® platform, fixed income trading via BrokerTec and foreign exchange trading on the EBS platform. In addition, it operates one of the world’s leading central counterparty clearing providers, CME Clearing. With a range of pre- and post-trade products and services underpinning the entire lifecycle of a trade, CME Group also offers optimization and reconciliation services through TriOptima, and trade processing services through Traiana.

CME Group, the Globe logo, CME, Chicago Mercantile Exchange, Globex, and, E-mini are trademarks of Chicago Mercantile Exchange Inc. CBOT and Chicago Board of Trade are trademarks of Board of Trade of the City of Chicago, Inc. NYMEX, New York Mercantile Exchange and ClearPort are trademarks of New York Mercantile Exchange, Inc. COMEX is a trademark of Commodity Exchange, Inc. BrokerTec, EBS, TriOptima, and Traiana are trademarks of BrokerTec Europe LTD, EBS Group LTD, TriOptima AB, and Traiana, Inc., respectively.Dow Jones, Dow Jones Industrial Average, S&P 500 and S&P are service and/or trademarks of Dow Jones Trademark Holdings LLC, Standard & Poor’s Financial Services LLC and S&P/Dow Jones Indices LLC, as the case may be, and have been licensed for use by Chicago Mercantile Exchange Inc. All other trademarks are the property of their respective owners.

New York/London/Hong Kong/Singapore/Sydney, January 8, 2019 ‒ The Depository Trust & Clearing Corporation (DTCC), the premier post-trade market infrastructure for the global financial services industry, today announced that it has received regulatory approval from the Swiss Financial Market Supervisory Authority to provide trade reporting services in Switzerland via DTCC’s Global Trade Repository service (GTR)1 in Europe.

DTCC’s GTR in Europe is the largest European Markets Infrastructure Regulation (EMIR)-registered trade repository in terms of reports collected from its clients, according to figures2from the European Securities Markets Authority (ESMA). The service has more than 3,500 clients sending over 500 million messages per month, with 46 European regulators regularly accessing its data.

Now having also obtained recognition as a Foreign Trade Repository in Switzerland, GTR will further expand its services to market participants in support of reporting obligations that fall under the Swiss Financial Markets Infrastructure Act (FMIA), also known as FinfraG. FinfraG aligns Swiss derivatives trading regulation with international standards and requires that firms with a registered office in Switzerland report their derivatives trades to an authorised or recognised trade repository.

Val Wotton, Managing Director, Product Development and Strategy, Derivatives and Collateral Management at DTCC, said: “We are pleased to have received regulatory approval to provide trade repository services in Switzerland. Market participants continue to seek a single platform that handles trade reporting across multiple jurisdictions and asset classes, and we are proud to extend our capabilities to Swiss market participants and to provide increased value to our clients.”

Today, GTR provides derivatives trade reporting services through its registered trade repositories across several jurisdictions, including the United States, Canada, Europe, Hong Kong, Singapore, Japan and Australia, and across all over-the-counter (OTC) asset classes, including credit, interest rates, equities, foreign exchange and commodities. With this announcement, DTCC’s GTR in Europe will now be able to fully support EMIR, Securities Financing Transactions Regulation (SFTR), subject to regulatory approval, and FinfraG regulations from a single platform.

About DTCC

With 45 years of experience, DTCC is the premier post-trade market infrastructure for the global financial services industry. From operating facilities, data centers and offices in 16 countries, DTCC, through its subsidiaries, automates, centralizes and standardizes the processing of financial transactions, mitigating risk, increasing transparency and driving efficiency for thousands of broker/dealers, custodian banks and asset managers. Industry owned and governed, the firm simplifies the complexities of clearing, settlement, asset servicing, data management and information services across asset classes, bringing increased security and soundness to financial markets. In 2017, DTCC’s subsidiaries processed securities transactions valued at more than U.S. $1.61 quadrillion. Its depository provides custody and asset servicing for securities issues from 131 countries and territories valued at U.S. $57.4 trillion. DTCC’s Global Trade Repository service maintains approximately 40 million open OTC positions per week and processes over one billion messages per month through its group of licensed trade repositories.

The Committee voted 5 to 2 to raise the policy rate by 0.25 percentage point from 1.50 to 1.75 percent, effective immediately. Two members voted to maintain the policy rate at 1.50 percent.

In deliberating their policy decision, the Committee assessed that the Thai economy continued to gain traction on the back of domestic demand while external demand slowed down. Headline and core inflation were projected to be broadly in line with the previous assessment. Overall financial conditions remained accommodative and conducive to economic growth. Financial stability remained sound overall, but it was deemed necessary to monitor risks that might lead to the build-up of vulnerabilities in the financial system in the future. The Committee viewed that the prolonged low policy rate had contributed to the economy expanding at the level consistent with its potential and the inflation target. Thus, most members viewed that the need for accommodative monetary policy as in the previous period had reduced, and voted to raise the policy rate at this meeting in order to curb financial stability risks and to start building policy space. Most members viewed that the policy rate at 1.75 percent would remain conducive to economic growth. Two members viewed that risks and uncertainties on the external front heightened and could affect Thailand’s economic growth in the period ahead, and thus saw the need to assess the clarity of impacts of external factors as well as sustainability of domestic growth momentum for some time. In addition, the implemented macroprudential measures had addressed certain risks in the financial stability to some extent.

The Thai economy as a whole continued to gain traction, consistent with its potential, although merchandise exports were affected by the projected slowdown in the global economy as well as trade protectionism measures between the US and China. Meanwhile, tourism exhibited slower growth especially due to the decline in the number of Chinese tourists but started to show signs of improvement. Domestic demand momentum continued to expand. Private consumption was expected to expand on the back of increasingly broad-based improvements in non-farm income as well as additional supports from government measures, while household income in the agricultural sector slightly declined. Nevertheless, private consumption was restrained by elevated household debt. Private investment was projected to expand thanks to the relocation of production base to Thailand and public-private partnership projects for infrastructure investment. Public expenditure would grow at a slower pace than previously assessed due to delayed investment by some state-owned enterprises. The Committee would monitor risks associated with trade protectionism measures between the US and China that could affect momentum of economic growth in the period ahead.

The annual average of headline inflation projection was expected to be broadly unchanged. However, downside risks remained due to fluctuations in energy and fresh food prices. Core inflation was projected to rise given the gradually rising demand-pull inflationary pressures. The Committee viewed that structural changes contributed to more persistent inflation than in the past. Such changes included the expansion of e-commerce, rising price competition, and technological development which reduced costs of production.

Financial conditions over the previous period had been accommodative and conducive to economic growth with ample liquidity in the financial system. Real interest rates remained low, allowing financing by the private sector to continue expanding. Loans extended to businesses and consumer continued to grow. The Committee assessed that, although the policy rate increased by 0.25 percent, overall financial conditions would remain accommodative and conducive to economic growth. With regard to exchange rates, movements of the baht against the US dollar were broadly stabilized compared with those of regional currencies. Looking ahead, the baht would likely remain volatile, and thus the Committee would continue to closely monitor exchange rate developments as well as impacts on the economy.

Financial stability remained sound overall but there remained a need to monitor risks arising from the prolonged low interest rate environment that might pose vulnerabilities to financial stability in the future, especially the search-for-yield behavior that might lead to underpricing of risks. The Committee viewed that the policy rate increase at this meeting would help curb accumulation of vulnerabilities in the financial system in conjunction with the macroprudential measures already implemented.

Looking ahead, the Thai economy was projected to continue to gain traction despite the slowdown in external demand. The Committee viewed that accommodative monetary policy would remain appropriate in the period ahead, and thus would continue to closely monitor developments of economic growth, inflation, and financial stability, together with associated risks, in deliberating appropriate monetary policy in the period ahead.

WEST LAFAYETTE, Ind. and CHICAGO, Dec. 4, 2018 /PRNewswire/ — Agricultural producer sentiment held steady in November with producers remaining optimistic about the state of the agricultural economy, according to results from the Purdue University/CME Group Ag Economy Barometer. The November barometer reading of 134 was only 1 percent lower than October, which is similar to levels seen last spring before trade disruptions began. The barometer utilizes a survey of 400 agricultural producers from across the country.

The barometer’s two sub-indices remain mostly unchanged from October; the Index of Current Conditions held at 115, and the Index of Future Expectations dropped 3 points to a reading of 143.

“Although there was a modest decline in the barometer this month, there was some evidence that producers are becoming more confident regarding the U.S. agricultural economy’s future,” said James Mintert, the barometer’s principal investigator and director of Purdue University’s Center for Commercial Agriculture.

That confidence can be seen in producers’ attitudes towards their willingness to make large farm investments. Each month producers are asked whether now is a “good time” or “bad time” to make a large investment in buildings and machinery. Their responses are used to produce a large investment index. In November, that investment index stood at 56, up from 52 in October and 10 points higher than in September of 2018 when the index set a new low of 42.

Producers were also more optimistic regarding their long term perspective on farmland values, with 50 percent expecting higher farmland values over the next 5 years, a sharp departure from a month earlier when just 21 percent said they expected higher farmland values.

However, this increase in confidence was not driven by expected improvements in profitability. In November, only 13 percent of respondents said they expect farm profitability to improve in the next 12 months. When asked about farmers’ equity position, 44 expect to see equity diminish in the upcoming year. Rising interest rates could also be a factor in these perceptions as a rise in interest rates can impact profitability and the value of large farm assets. When asked, 85 percent of producers said they expect interest rates to rise in the next year and 76 percent expect to see a rise in the next 5 years compared to 2018.

With November marking an end to the mid-term election cycle, producers were asked whether they were concerned that Congress had not passed new farm bill legislation. Seventy-five percent of respondents said they were either “somewhat or very concerned,” 33 percent said they were “very concerned,” and 24 percent said they were “not at all concerned” about the lack of new Farm Bill legislation.

Read the full November Ag Economy Barometer report at http://purdue.edu/agbarometer. This month’s report includes additional information on producers’ future expectations for agricultural exports and an update on producers’ intentions to reduce their soybean acreage in the 2019 season. Additional November barometer analysis can also be found in a video from Mintert at https://youtu.be/Q-9NqD14EdE.

The Ag Economy Barometer, Index of Current Conditions and Index of Future Expectations are available on the Bloomberg Terminal under the following ticker symbols: AGECBARO, AGECCURC and AGECFTEX.

About the Purdue University Center for Commercial AgricultureThe Center for Commercial Agriculture was founded in 2011 to provide professional development and educational programs for farmers. Housed within Purdue University’s Department of Agricultural Economics, the center’s faculty and staff develop and execute research and educational programs that address the different needs of managing in today’s business environment.

CHICAGO, Nov. 15, 2018 /PRNewswire/ — CME Group, the world’s leading and most diverse derivatives marketplace, today announced its suite of energy futures and options reached a daily trading volume record of 5,103,881 contracts on Wednesday, Nov. 14, 2018, surpassing the previous record of 5,067,833 contracts set on Dec. 1, 2016.

“Customers are increasingly accessing the deep liquidity across our energy markets to manage price risk during this time of increased volatility and uncertainty,” said Peter Keavey, CME Group Global Head of Energy. “We’re continually working with participants to grow on-screen liquidity across all our energy markets, especially energy options. This increased access to our markets ensures customers can more effectively and efficiently hedge and trade around the globe and around the clock.”

CME Group’s suite of energy futures and options contracts are listed by and subject to the rules of NYMEX. Additional information about CME Group’s energy products can be found at www.cmegroup.com/energy.

About CME GroupAs the world’s leading and most diverse derivatives marketplace, CME Group (www.cmegroup.com) enables clients to trade futures, options, cash and OTC markets, optimize portfolios, and analyze data – empowering market participants worldwide to efficiently manage risk and capture opportunities. CME Group exchanges offer the widest range of global benchmark products across all major asset classes based on interest rates, equity indexes, foreign exchange, energy, agricultural products and metals. The company offers futures and options on futures trading through the CME Globex® platform, fixed income trading via BrokerTec and foreign exchange trading on the EBS platform. In addition, it operates one of the world’s leading central counterparty clearing providers, CME Clearing. With a range of pre- and post-trade products and services underpinning the entire lifecycle of a trade, CME Group also offers optimization and reconciliation services through TriOptima, and trade processing services through Traiana.

CME Group, the Globe logo, CME, Chicago Mercantile Exchange, Globex, and, E-mini are trademarks of Chicago Mercantile Exchange Inc. CBOT and Chicago Board of Trade are trademarks of Board of Trade of the City of Chicago, Inc. NYMEX, New York Mercantile Exchange and ClearPort are trademarks of New York Mercantile Exchange, Inc. COMEX is a trademark of Commodity Exchange, Inc. BrokerTec, EBS, TriOptima, and Traiana are trademarks of BrokerTec Europe LTD, EBS Group LTD, TriOptima AB, and Traiana, Inc., respectively.Dow Jones, Dow Jones Industrial Average, S&P 500 and S&P are service and/or trademarks of Dow Jones Trademark Holdings LLC, Standard & Poor’s Financial Services LLC and S&P/Dow Jones Indices LLC, as the case may be, and have been licensed for use by Chicago Mercantile Exchange Inc. All other trademarks are the property of their respective owners.

CHICAGO, Nov. 1, 2018 /PRNewswire/ — CME Group, the world’s leading and most diverse derivatives marketplace, today announced four firms participated in its first-ever multi-lateral compression cycle for equity options on futures, which successfully reduced 587,000 contract sides and compressed portfolios submitted for this cycle by 22 percent.

Equity options compression allows market participants the ability to reduce the amount of open positions held and corresponding capital charges of a given portfolio without materially changing the risk exposure. This simplifies portfolio management for customers while freeing up capital.

Tim McCourt, CME Group Global Head of Equity Index Products and Alternative Investments

“In today’s regulatory environment, our customers and participants across the broader marketplace are focused on increasing capital efficiencies,” said Tim McCourt, CME Group Global Head of Equity Products and Alternative Investments. “Multi-lateral compression services are designed to increase liquidity and market quality across the equity options complex, while minimizing the impact of capital requirements faced by our clients and clearing members.”

“ABN AMRO Clearing Chicago was pleased to be a part of a successful launch and an initial participant in CME Group’s innovative listed option compression facility,” said Tim Brennan, Managing Director and Chief Commercial Officer for ABN AMRO Clearing Chicago. “Innovative tools such as the compression facility help clearing members and market participants manage capital ratios in a challenging environment. This is an example of how clearing firms, market participants and CME Group can partner together to come up with productive, viable solutions.”

Equity options compression is the latest compression solution from CME Group designed to deliver capital efficiencies to our customers. Year to date, Equity Index options are averaging 810,000 contracts per day, up 22 percent from the same period last year. Going forward, CME Group plans to run equity compression cycles on a monthly basis.

Equity options compression services are currently available for S&P 500 and E-mini S&P 500 options contracts traded on CME. Additional information is available online.

As the world’s leading and most diverse derivatives marketplace, CME Group (www.cmegroup.com) is where the world comes to manage risk. CME Group exchanges offer the widest range of global benchmark products across all major asset classes, including futures and options based on interest rates, equity indexes, foreign exchange, energy, agricultural products and metals. Around the world, CME Group brings buyers and sellers together through its CME Globex® electronic trading platform. CME Group also operates one of the world’s leading central counterparty clearing providers through CME Clearing, which offers clearing and settlement services across asset classes for exchange-traded and over-the-counter derivatives. CME Group products and services ensure that businesses around the world can effectively manage risk and achieve growth.

CME Group, the Globe logo, CME, Chicago Mercantile Exchange, Globex and E-mini are trademarks of Chicago Mercantile Exchange Inc. CBOT and Chicago Board of Trade are trademarks of Board of Trade of the City of Chicago, Inc. NYMEX, New York Mercantile Exchange and ClearPort are trademarks of New York Mercantile Exchange, Inc. COMEX is a trademark of Commodity Exchange, Inc. Dow Jones, Dow Jones Industrial Average, S&P 500 and S&P are service and/or trademarks of Dow Jones Trademark Holdings LLC, Standard & Poor’s Financial Services LLC and S&P/Dow Jones Indices LLC, as the case may be, and have been licensed for use by Chicago Mercantile Exchange Inc. All other trademarks are the property of their respective owners.

CHICAGO, Nov. 2, 2018 /PRNewswire/ — CME Group, the world’s leading and most diverse derivatives marketplace, reached average daily volume (ADV) of 20.6 million contracts per day during October 2018, up 38 percent from October 2017. Open interest at the end of October was 128 million contracts, up 6 percent from October 2017 and up 19 percent from year-end 2017.

Equity Index volume averaged 4.7 million contracts per day in October 2018, up 111 percent from October 2017. Highlights include:

Record E-mini Nasdaq-100 futures and options ADV, up 181 percent to 739,000 contracts, including a daily volume record for E-mini Nasdaq-100 futures of 1.15 million contracts on October 11

Record E-mini Dow futures daily volume of 697,000 contracts on October 11

As the world’s leading and most diverse derivatives marketplace, CME Group (www.cmegroup.com) is where the world comes to manage risk. CME Group exchanges offer the widest range of global benchmark products across all major asset classes, including futures and options based on interest rates, equity indexes, foreign exchange, energy, agricultural products and metals. Around the world,c buyers and sellers together through its CME Globex® electronic trading platform. CME Group also operates one of the world’s leading central counterparty clearing providers through CME Clearing, which offers clearing and settlement services across asset classes for exchange-traded and over-the-counter derivatives. CME Group products and services ensure that businesses around the world can effectively manage risk and achieve growth.

CME Group, the Globe logo, CME, Chicago Mercantile Exchange, Globex and E-mini are trademarks of Chicago Mercantile Exchange Inc. CBOT and Chicago Board of Trade are trademarks of Board of Trade of the City of Chicago, Inc. NYMEX, New York Mercantile Exchange and ClearPort are trademarks of New York Mercantile Exchange, Inc. COMEX is a trademark of Commodity Exchange, Inc. Dow Jones, Dow Jones Industrial Average, S&P 500 and S&P are service and/or trademarks of Dow Jones Trademark Holdings LLC, Standard & Poor’s Financial Services LLC and S&P/Dow Jones Indices LLC, as the case may be, and have been licensed for use by Chicago Mercantile Exchange Inc. All other trademarks are the property of their respective owners.

Introduction

It is great to visit Regina during the waning days of summer. I would like to thank Chris Dekker of the Saskatchewan Trade & Export Partnership for the invitation to give an update on Canada’s economic performance, and discuss the Bank of Canada’s interest-rate announcement yesterday.

The big picture over the summer has been that the global economy is doing well, despite some troubling developments on the trade front. Many countries around the world are continuing to grow and put people back to work. Here in Canada the economy has shown its resilience, operating near capacity for the past year—the first time that has happened since the global financial crisis.

Next week marks 10 years since Lehman Brothers failed; and, after many fits and starts, this period of sustained growth seems like it has been a long time coming. Since the crisis, people in Saskatchewan have also been forced to deal with the consequences of the plunge in oil prices that started in 2014, and lower prices for many other commodities. The Saskatchewan economy returned to growth last year, and it is good to see the expansion here is continuing.

The Canadian economy is now on a solid footing, although we are feeling some headwinds from the trade environment. The recent US tariffs on steel and aluminum mean losses on both sides of the border. Trade disputes between the United States and China are affecting Canadian commodity producers too. And uncertainty about the North American Free Trade Agreement (NAFTA) means a number of businesses are wary of making investments in capacity that would help them take advantage of improved global demand.

I know that these issues are top of mind for many here today. For any business, facing the challenges that come with uncertainty is crucial.

Farming in Saskatchewan is now an impressively high-tech business. Yet, to succeed, business leaders in this sector

Carolyn A

still need to deal with the vagaries of Mother Nature and global commodity prices. Decisions must still be taken and followed through on.

It is surprisingly similar for the Bank of Canada’s Governing Council. We have some finely honed economic models to guide us, yet we must take decisions about the policy interest rate amid many unknowns to meet our inflation objective. We also must follow through by communicating with Canadians and with financial markets about our outlook for the economy and inflation.

With that in mind, my remarks today will cover three points: First, how the Canadian economy has evolved since our quarterly Monetary Policy Report (MPR) in July; next, how we have factored developments on the trade side into our outlook; and, finally, I will give you a sense of Governing Council’s deliberations that led to our decision yesterday to hold our policy rate steady.

Recent economic developments

When it comes to economic developments, Canada has been thrown several curve balls over the past decade: the financial crisis; lower commodity prices; and now, trade tensions. It was only a little over a year ago that we could see that the adjustment to lower oil prices was sufficiently behind us to begin withdrawing the monetary stimulus we had put in place in 2015. We have raised the policy rate four times since July 2017, to 1 1/2 per cent. During this period, overall Canadian economic performance has been solid and broad-based. Growth has been running close to potential, the rate at which the economy can grow on a sustained basis without sparking too much inflation. And core inflation measures are now around 2 per cent.

Today, the policy rate is still relatively low—by that I mean that it is lower than what we would consider to be a “neutral” rate of interest.1 The data and other information we have received since July reaffirm Governing Council’s view that higher interest rates will be required to achieve our inflation target.

In fact, the global economy is performing largely as we expected, and that is a good thing because it will support growth here at home. Our neighbour to the south has seen particularly strong demand, driven by household and business spending. Some jurisdictions, though, are showing signs of weaker momentum, which may be partly linked to trade measures and uncertainty about trade policy.

Meanwhile, the most recent data for Canada indicate that growth should average near potential over the next couple of years.

Some of you might recall that in our July forecast we were counting on a quick rebound from the marked slowdown in gross domestic product (GDP) growth that we saw during the first quarter of this year. This was an important call because it lent support to our view that July was the right time to raise interest rates by 25 basis points.

The GDP data released last week by Statistics Canada show that we were right on the money; the economy grew at an annual pace of 2.9 per cent between April and June, twice the pace we saw earlier this year. Growth was fuelled by consumption and exports and, to a lesser extent, business investment and government spending.2 The data support our view that the shift in demand toward exports and investment is continuing. Healthy growth in consumption and home renovations also indicates that households are generally adjusting well to higher interest rates.3

A wide range of sectors are contributing to these developments. The resource sector continues to expand after a few tough years. The services sector is also growing in many high value-added areas. For example, in the second quarter computer system design and related services grew more than 10 per cent from a year earlier.

We expect the quarterly profile of GDP growth to be volatile for the rest of 2018, but to still average around 2 per cent. Temporary factors that pushed up exports in the second quarter are expected to unwind, and there have been some outages in the oil sector. Those factors will likely weigh on growth in the third quarter, but do not point to weaker underlying momentum.

All of this is encouraging. And we are making progress in understanding some of the issues that have been on our minds for a while.

The first relates to the housing market and household debt, and how they are responding to a wide range of policy changes. These include the tighter guidelines for mortgage financing that came into effect in January, some provincial measures to target specific housing markets and, of course, higher interest rates over the past year.4

We saw resale activity in the housing market slow markedly at the beginning of 2018, particularly in the greater Toronto and Vancouver areas. This swing was amplified by the fact that many households had rushed to secure their financing and complete transactions ahead of the new rules coming into effect. Recent data show that in Toronto resales are rebounding and prices are stabilizing too, although in Vancouver activity and price growth remain subdued. Other urban markets that had weakened, such as Regina and Saskatoon, have steadied or shown some recovery.

So, on a national basis, sales and prices appear to be stabilizing.

This suggests that borrowers and lenders are adjusting to the range of policy changes as anticipated, and that financial vulnerabilities are beginning to ease. Growth in household credit has slowed, and the household debt-to-income ratio is edging lower. We see an improvement in the quality of new uninsured mortgages, resulting in a smaller proportion of these households becoming highly indebted.5 What I mean by highly indebted is households with loan-to-income ratios above 450 per cent. These are early positive signs, and we will have an even better view of developments as the data come in.

A second issue that we are always working to better understand relates to developments on the inflation front. The companies that participated in our Business Outlook Survey (BOS) during the second quarter told us that capacity pressures and labour shortages were intensifying. Yet, wages were rising less quickly than we would expect in an economy that is near capacity. The latest data indicate that this is still the case: Our preferred measure of wage gains was up by just under 2 ½ per cent in the second quarter.

That said, inflation data for July surprised us on the upside by coming in at 3 per cent. We had expected that inflation would average around 2 ½ per cent in the third and fourth quarters, rising toward the upper end of our target range because of temporary factors such as gasoline prices, rather than pressure from excess demand.6Since much of the July surprise was due to a jump in the airfare component of the consumer price index (CPI), we continue to hold this view.

Here is where our measures of core inflation are particularly valuable as operational guides, because they strip out a lot of the noise. Those measures have remained around 2 per cent, supporting our assessment that the inflation increase will be temporary.

Factoring the trade policy environment into the outlook

Let me turn now to the final issue—the trade environment—which has been top of mind for some time given its importance to economic prospects here at home and abroad. And, while Canadian officials have been working hard to resolve the issues, a lot of uncertainty remains.

Canadian businesses are telling us that trade tensions are among several factors keeping them from investing in new capacity, even though both demand and investment intentions are strong in many sectors. Here in Saskatchewan, we have spoken with firms whose investment plans are in flux pending more clarity about NAFTA. Others are exploring whether to invest across the border instead of in Canada. These kinds of responses to uncertainty are not adequately captured by our economic models, so we need to apply judgment. This judgment is informed by our quarterly BOS, as well as by other discussions we have with business people across Canada. Canada is not alone in this—we expect that investment in many other jurisdictions is suffering from similar effects.

To assess the impact of the tariffs that have been announced, we followed two steps. The first step was to look at the potential long-term effects of the recent tariff changes. We used a new model developed by staff that is described in a staff analytical note published this morning.7 It provides an excellent framework for mapping how trade flows might change and how resources might shift across sectors over a long period of time. The second step was to consider the shorter-term effects—what might happen as businesses and workers adjust over the transition period. This is a process that is too complex for models to fully capture, yet is important to understand for monetary policy. Of course, we also accounted for the effects of countermeasures implemented by the Canadian government.

Taken together, the Bank estimates that the combination of reduced confidence and trade measures already taken will shave about two-thirds of 1 per cent from GDP in Canada by 2020.8

We are seeing the effects already. June trade data showed steel exports fell the most since 2008, with little movement in July. Moreover, the value of consumer goods subject to a 10-per cent import tariff fell almost 23 per cent in July, following a run-up in the previous months.

Regarding inflation, we estimated that Canada’s countermeasures would temporarily boost inflation by about 0.1 percentage point until the third quarter of 2019. The most recent inflation report from Statistics Canada showed no impact from the tariffs on prices to date. Still, some beer and pop manufacturers have announced plans to raise prices in response to the rising cost of aluminum cans.

The outlook for growth and inflation in Canada is also affected by tariff disputes between big players such as the United States and China. These disputes can cause shifts in global markets that affect the prices of many of the commodities we produce. Reflecting this, the prices of base metals and some agricultural products have softened. Saskatchewan was among the provinces to experience this effect earlier in the summer.

It is important to recognize that the challenges facing Canadian exporters are not only about NAFTA and tariffs. Concerns about weak business investment, firms building new capacity outside our borders, and declining market shares existed long before the current trade tensions emerged. Competitiveness issues have been hampering Canadian businesses for some time, even while foreign demand has been growing.

Market share in the United States for Canada’s non-energy goods has, in fact, been declining over the past 15 years.9 The effect has been particularly acute in the manufacturing sector. This trend has meant a much lower share of employment for most manufacturing industries, including automotive and parts and clothing. Regardless of what transpires on the trade policy front, the Bank will still need to better understand the competitiveness issues to assess the extent to which Canada has permanently lost market share and export capacity.10

Yesterday’s decision

Let me now turn to Governing Council’s policy deliberations that led to yesterday’s decision. It will not surprise you to hear that the implications of the current trade environment were front and centre. As I just outlined, we have already incorporated into our forecast the expected negative effects of uncertainty on business investment and exports, as well as the effects of US tariffs and Canadian countermeasures imposed so far. These estimates are highly uncertain and may need to be adjusted as we get more information about the NAFTA negotiations and how businesses are adjusting their plans.

Our practice is to not incorporate scenarios that have yet to occur, even though they may be the subject of ongoing discussions. That said, the risks to growth related to trade policies are not just on the downside, particularly in light of the ongoing negotiations. There is some significant upside as well.

Nonetheless, it is important to understand that certain trade developments can result in complex trade-offs for monetary policy.

On the one hand, protectionist measures can be costly in terms of growth and incomes, particularly as businesses and people adjust. A recent study by the Bank for International Settlements (BIS) shows how virtually all regions in Canada, Mexico and the United States could expect lower real wages if these countries reverted from NAFTA to World Trade Organization tariff rates.11

On the other hand, protectionist measures create risks to the upside for inflation, especially when the economy is operating near full capacity. In weighing these trade-offs, you can be sure that Governing Council will not lose sight of our primary mission. Low and stable inflation will help reduce at least one source of uncertainty for companies and households. Of course, there are a number of structural and other policies that are better suited than monetary policy to help manage what would be complex adjustments.

Governing Council also discussed whether the gradual approach to raising rates that we have been taking over the past year remains appropriate. It is a natural question to ask, given that the economy has been operating at potential for the past year and it is in this part of the cycle when interest rates typically rise to pre-empt a buildup in inflation pressures. As I mentioned earlier, the factors that are pushing inflation to the top of our target band appear to be temporary and not signs of excess demand. These factors mean that inflation could turn out to be higher over the next couple of quarters than we had expected in July, but will most likely fall off afterward barring any new price shocks.

We will need to do a full update of our inflation outlook for the October MPR, but we already have a good idea of when the effects of the temporary factors at play right now are likely to dissipate. For example, the increases in gasoline prices from earlier this year are contributing 0.7 percentage point to above-target inflation today. This effect will largely recede by the first quarter of next year. We have seen this in the past, since fluctuations in energy prices have accounted for about three-quarters of the overall movement in inflation. To do our job without causing undue volatility in growth, we look through these factors, while remaining alert to signs of underlying inflation pressures.

Furthermore, we still acknowledge that there may be more room to grow without causing inflation than we have built into our forecast. We also know that high levels of household debt have made the economy more sensitive to interest-rate increases than in the past. That is because people must commit more of their income to servicing their debt when borrowing cost rise, leaving less for other spending. The fact that the job market has been particularly strong, and that average household incomes are rising, helps this adjustment. Consumer confidence has also been relatively high. All this suggests that the economy is adjusting well and can adapt to higher interest rates.

The bottom line is that Governing Council agreed that the gradual approach we have been following is still appropriate.

Finally, we discussed how much momentum remains in the global expansion. Few would disagree that the United States is showing considerable strength, but some commentators see a relatively flat US yield curve as a sign of trouble ahead. While there are downside risks to any outlook, Governing Council prefers to look at a broader range of indicators. For one thing, the yield curve is not currently inverted, and is therefore not pointing to significant slowing.12 Besides that, the shape of the curve may not be a reliable signal in the current environment anyway. This is because longer-dated bond yields are being distorted by a combination of central bank quantitative easing programs and strong private demand for long-dated safe assets. Other indicators to look at include credit spreads, which remain narrow.13 There may be some downside risk to our July outlook for the global economy coming from trade tensions, and cracks have appeared in certain emerging economies with financial vulnerabilities, but with limited spillovers to other countries.

Conclusion

It is time for me to conclude. In terms of momentum in Canada, we are encouraged that the economy is adjusting well to higher borrowing rates and tighter guidelines for mortgage financing. We are also pleased with the continued shift in the composition of growth toward exports and business investment.

Recent data reinforce Governing Council’s assessment that higher interest rates will be warranted to achieve the inflation target. We will continue to take a gradual approach, guided by incoming data. In particular, the Bank continues to gauge the economy’s reaction to higher interest rates. The Bank is also monitoring closely the course of NAFTA negotiations and other trade policy developments, and their impact on the inflation outlook.

I would like to thank Claudia Godbout, Harriet Jackson and Eric Santor for their help in preparing this speech.

The global economic expansion is continuing. A number of advanced economies are growing at an above-trend rate and unemployment rates are low. Growth in China has slowed a little, with the authorities easing policy while continuing to pay close attention to the risks in the financial sector. Globally, inflation remains low, although it has increased in some economies and further increases are expected given the tight labour markets. One ongoing uncertainty regarding the global outlook stems from the direction of international trade policy in the United States.

Financial conditions remain expansionary, although they are gradually becoming less so in some countries. There has been a broad-based appreciation of the US dollar this year. In Australia, money-market interest rates are higher than they were at the start of the year, although they have declined somewhat since the end of June. These higher money-market rates have not fed through into higher interest rates on retail deposits. Some lenders have increased mortgage rates by small amounts, although the average mortgage rate paid is lower than a year ago.

The Bank’s central forecast is for growth of the Australian economy to average a bit above 3 per cent in 2018 and 2019. In the first half of 2018, the economy is estimated to have grown at an above-trend rate. Business conditions are positive and non-mining business investment is expected to increase. Higher levels of public infrastructure investment are also supporting the economy, as is growth in resource exports. One continuing source of uncertainty is the outlook for household consumption. Household income has been growing slowly and debt levels are high. The drought has led to difficult conditions in parts of the farm sector.

Australia’s terms of trade have increased over the past couple of years due to rises in some commodity prices. While

Philip Lowe RBA Governor and Chair

the terms of trade are expected to decline over time, they are likely to stay at a relatively high level. The Australian dollar remains within the range that it has been in over the past two years on a trade-weighted basis, but it has depreciated against the US dollar along with most other currencies.

The outlook for the labour market remains positive. The unemployment rate has fallen to 5.3 per cent, the lowest level in almost six years. The vacancy rate is high and there are reports of skills shortages in some areas. A further gradual decline in the unemployment rate is expected over the next couple of years to around 5 per cent. Wages growth remains low, although it has picked up a little recently. The improvement in the economy should see some further lift in wages growth over time, although this is likely to be a gradual process.

Inflation is around 2 per cent. The central forecast is for inflation to be higher in 2019 and 2020 than it is currently. In the interim, once-off declines in some administered prices in the September quarter are expected to result in headline inflation in 2018 being a little lower, at 1¾ per cent.

Conditions in the Sydney and Melbourne housing markets have continued to ease and nationwide measures of rent inflation remain low. Housing credit growth has declined to an annual rate of 5½ per cent. This is largely due to reduced demand by investors as the dynamics of the housing market have changed. Lending standards are also tighter than they were a few years ago, partly reflecting APRA’s earlier supervisory measures to help contain the build-up of risk in household balance sheets. There is competition for borrowers of high credit quality.

The low level of interest rates is continuing to support the Australian economy. Further progress in reducing unemployment and having inflation return to target is expected, although this progress is likely to be gradual. Taking account of the available information, the Board judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.

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